Source · Select Committees · Treasury Committee
First Report - The digital pound: still a solution in search of a problem?
Treasury Committee
HC 215
Published 2 December 2023
Recommendations
3
Rejected
Para 38
Undertake further analysis on monetary policy impact of paying interest on digital pound.
Recommendation
We recommend that the Bank of England and Treasury undertake further analysis on the monetary policy impact of paying interest on the digital pound, and in the meantime ensure that their design work does not preclude the possibility of paying …
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Government Response Summary
The government rejects paying interest on the digital pound at launch, stating it is intended as a payment means and would be unremunerated like cash, though any future decision to revisit this would involve a full consultation.
HM Treasury
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5
Accepted
Para 46
Prohibit Government and Bank of England from using digital pound data beyond law enforcement.
Recommendation
We recommend that any primary legislation used to introduce a digital pound does not allow the Government or Bank of England to use the data from a digital pound for any purposes beyond those already permitted for law enforcement.
Government Response Summary
The government has committed to guaranteeing users' privacy in primary legislation if a digital pound were launched, confirming neither the Government nor the Bank would have access to personal data beyond existing law enforcement permissions.
HM Treasury
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7
Acknowledged
Para 48
Ensure transparent data collection, clear opt-outs, and robust regulation for digital pound wallet providers.
Recommendation
While some consumers may be content to share their personal data with payment interface providers in exchange for digital pound wallet services, there is a risk that consumers do not fully understand how their data could be used, or the …
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Government Response Summary
The government acknowledges concerns about private sector data use, stating all firms would comply with existing UK data protection laws, and commits to exploring privacy-enhancing designs and detailing the regulatory framework during the design phase.
HM Treasury
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8
Accepted
Para 52
Digital pound must support financial inclusion, exploring offline payment options for accessibility.
Recommendation
It would be important to support financial inclusion to the greatest possible extent through a digital pound were it to be launched, including by exploring the option of offline payments to ensure accessibility by users with limited or unreliable internet …
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Government Response Summary
The government has accepted the recommendation, establishing a working group to report on offline payments by year-end, and committing to conduct experiments exploring accessibility for digitally excluded users.
HM Treasury
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9
Accepted in Part
Ensure continued support for physical cash and improve digital literacy for financial inclusion.
Recommendation
The Government and Bank of England must resist the temptation to believe that a digital pound can fix problems it can’t, however, and a digital pound must not make financial exclusion worse. There is a risk that the introduction of …
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Government Response Summary
The government states a digital pound would complement cash and references its 2023 legislation giving the FCA powers to protect access to cash, with a new regulatory framework expected by summer 2024, but does not address digital literacy or universal access to digital pound services.
HM Treasury
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10
Accepted
Para 58
Unclear whether digital pound benefits outweigh significant privacy and financial stability risks.
Recommendation
This report has set out some of the benefits and risks from a digital pound. While there are some potential benefits, their extent is unclear and there are significant risks and challenges to be worked through, particularly in relation to …
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Government Response Summary
The government accepts the recommendation, stating that the committee's message aligns with HM Treasury and the Bank's approach to the next design phase, which will deepen understanding and build an evidence base for a decision later this decade.
HM Treasury
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11
Accepted in Part
Para 59
Report digital pound expenditure as a separate line item in Bank of England annual accounts.
Recommendation
The Bank of England has already incurred significant costs from its work on a digital pound, and its further work on the design of a digital pound will require increased expenditure in the coming years. It is important that the …
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Government Response Summary
The Bank acknowledges the request for transparency on digital pound costs, stating it currently reports CBDC costs within its broader fintech work, and will consider the appropriate future reporting mechanism.
HM Treasury
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12
Accepted
Mandate a neutral and rigorous cost-benefit analysis for any digital pound launch decision.
Recommendation
Building the infrastructure needed for a digital pound would also likely be very expensive, and the eventual decision on whether to launch a digital pound will need to be subject to a rigorous cost-benefit analysis. The Bank of England and …
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Government Response Summary
The government agrees that a balanced, transparent, and rigorous approach, from a neutral stance, is required for the cost-benefit analysis of a digital pound, which will cover economic, societal, and financial implications.
HM Treasury
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13
Deferred
Publish detailed criteria for assessing the future launch decision of a digital pound.
Recommendation
To help ensure a rigorous and balanced approach is taken towards assessing the case for launching a digital pound in future, we recommend that the Government and Bank of England set out in more detail, as soon as possible, the …
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Government Response Summary
The government agrees to a rigorous assessment approach but states the specific criteria and wider assessment framework for launching a digital pound are still being developed as part of the design phase, promising to report on progress and engage stakeholders.
HM Treasury
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Conclusions (4)
1
Conclusion
Acknowledged
There are some potential benefits to the UK economy from a digital pound. A digital pound could help support innovation in domestic payments, while guarding against some of the risks posed by new forms of private digital money by maintaining public access to a form of central bank money. Innovation …
Government Response Summary
The government acknowledges the committee's observation on potential benefits, reiterating that the design process itself will foster knowledge-sharing and collaboration, which are valuable regardless of the final decision to introduce a digital pound.
2
Conclusion
Rejected
Para 34
It is vital that a digital pound does not increase risks to UK financial stability and, were a digital pound to be launched, it could take some time to fully understand the impact on financial stability and the wider economy in both normal and stressed times. To reduce the risk …
Government Response Summary
The government rejects the suggestion for a lower initial holding limit, stating it is minded to proceed with a £10,000-£20,000 limit for the digital pound, while remaining open to revisiting this if new information arises.
4
Conclusion
Accepted
Para 45
Strong privacy safeguards would be vital were a digital pound to be introduced. Although the Bank of England and Government state that it is not their intention to be able to access users’ data, it is conceivable that they may in future be tempted to try to make use of …
Government Response Summary
The government has committed to guaranteeing users' privacy in primary legislation if a digital pound is launched, aligning with the report's emphasis on strong privacy safeguards and confirming neither the Government nor the Bank would access personal data.
6
Conclusion
Acknowledged
Para 47
We are also concerned about potential misuse of consumers’ data by the user-facing firms that would manage consumers’ digital pound wallets, particularly given that the commercial use of this data could form a key part of the business model for wallet providers, in a way that it doesn’t for banks.
Government Response Summary
The government acknowledges concerns about private sector data misuse and states firms would comply with existing UK data protection laws, promising to explore privacy-enhancing designs and set out the regulatory framework in detail during the design phase.